Gentleman from Bangalore sent me the following!RESEARCH Technology | U.S. Wireless Equipment | 27 October 2011
INTERDIGITAL, INC.
F3Q Beat on 1x Items; Process Ongoing
InterDigital reported better than expected F3Q results helped by several one time items.
Underlying revenues however declined given Japan/RIM, though exposure to the
smartphone market – which remains healthy – benefited the quarter. Management
again did not host a conference call as its strategic alternative evaluation process
remains ongoing and is likely to remain the key focus for now.
Better F3Q revenues driven by a one time resolution: F3Q revenues of $76.5M were
above our estimate of $74.4M as an audit resolution with an existing customer led past
sales to $7.9M from $0.4M in F2Q. Excluding this, revenues were $68.8M, and below
our estimate as per unit revenues continued to decline. Per unit revenues declined 2%
QoQ and were again impacted by declining royalties from customers in Japan and likely
RIM as well. Given revenue recognition one quarter in areas, we consider RIM to remain
a negative impact on F4Q. During the quarter, Samsung (34%), RIM (13%) and HTC
(12%) remained IDCC’s top three customers, representing 59% of total sales.
Large tax benefit offset higher opex to yield $0.12 EPS beat: A favorable tax
resolution (~$0.18 benefit) offset higher opex in litigation costs as well as expenses
associated with the strategic alternative evaluation process. Opex is likely to remain at
elevated levels in F4Q. F3Q EPS of $0.57 was above our estimate of $0.45.
Reducing 2011/2012 estimates, target declines to $45: We lower our F4Q estimates
to $70.3M / $0.32 from $78.8M / $0.49 given declining underlying revenues and higher
opex. Our 2012 estimates decline modestly to $331.1M / $2.08 from $337.2M / $2.25.
The outstanding litigation with Nokia and LG remain key overhangs.
Barclays Capital is providing investment banking services to the Board of Directors
of InterDigital as the company explores potential strategic alternatives.
IDCC: Quarterly and Annual EPS (USD)
2010 2011 2012 Change y/y
FY Dec Actual Old New Cons Old New Cons 2011 2012
Q1 1.09A 0.51A 0.51A N/A 0.56E 0.48E N/A -53% -6%
Q2 0.78A 0.37A 0.37A N/A 0.55E 0.51E N/A -53% 38%
Q3 0.79A 0.45E 0.57A N/A 0.55E 0.55E N/A -28% -4%
Q4 0.76A 0.49E 0.32E N/A 0.59E 0.54E N/A -58% 69%
Year 3.43A 1.82E 1.77E N/A 2.25E 2.08E N/A -48% 18%
P/E 13.2 25.5 21.7
Source: Barclays Capital
Consensus numbers are from Thomson Reuters
Barclays Capital does and seeks to do business with companies covered in its research reports. As a
result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 6.
Stock Rating 1-OVERWEIGHT
Unchanged
Sector View 2-NEUTRAL
Unchanged
Price Target USD 45.00
lowered -18% from USD 55.00
Price (26-Oct-2011) USD 45.15
Potential Upside/Downside 0%
Tickers IDCC
Market Cap (USD mn) 2147
Shares Outstanding (mn) 45.44
Free Float (%) 98.91
52 Wk Avg Daily Volume (mn) 1.4
Dividend Yield (%) 0.6
Return on Equity TTM (%) 32.11
Current BVPS (USD) 9.29
Source: FactSet Fundamentals
Price Performance Exchange-Nasdaq
52 Week range USD 82.50-30.12
Jan- 11 Apr- 11 Jul- 11 Oct- 11
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Link to Barclays Capital Live for interactive charting
U.S. Wireless Equipment
Jeff Kvaal
1.212.526.2216
jeffrey.kvaal@barcap.com
BCI, New York
Sara Q. Wang
1.212.526.3156
sara.wang@barcap.com
BCI, New York
Barclays Capital | InterDigital, Inc.
27 October 2011 2
COMPANY SNAPSHOT
INTERDIGITAL INC. U.S. Wireless Equipment
Income statement $mn) 2010A 2011E 2012E 2013E CAGR
Revenue 3 95 2 95 3 31 NA NA Stock Rating 1-OVERWEIGHT
EBITDA 2 58 1 43 1 82 NA NA Sector View 2-NEUTRAL
EBIT 2 36 1 25 162 NA NA Price (26-Oct-2011) $45.15
Pre-tax income 2 38 1 15 149 NA NA Price Target $45
Net income 1 54 8 2 96 NA NA Ticker IDCC
Reported EPS ($) 3 .43 1 .77 2.08 NA NA
Diluted shares (m) 4 5 4 6 4 6 NA NA Investment case
Dividend per share ($) - 0 .40 0.40 NA NA
Margin and return data (%) Average
EBITDA margin 65.4 48.5 54.8 NA 56.2
EBIT margin 59.8 42.5 48.9 NA 50.4
Pre-tax margin 60.4 38.9 45.1 NA 48.1
Net margin 38.9 27.7 29.1 NA 31.9
ROIC (0.50) (3.60) (3.49) NA NM
ROA 17.6 7.9 8.4 NA 11.3 Upside case $62
ROE -134.9 17.4 16.8 NA NM
Balance sheet and cash flow $mn) CAGR
Tangible fixed assets 1 39 1 39 1 22 NA NA
Intangible fixed assets NA NA NA NA NA
Cash and equivalents 5 42 7 14 8 36 NA NA
Total assets 8 75 1 ,040 1,150 NA NA
Short and long-term debt 1 1 2 00 2 00 NA NA Downside case $39
Other long-term liabilities NA NA NA NA NA
Total liabilities 9 89 5 71 5 77 NA NA
Net debt/(funds) (531) (514) ( 636) NA NA
Shareholders' equity ( 114) 4 69 5 73 NA NA
Change in working capi tal 1 60 ( 4) 1 NA NA
Operating cash flow 1 34 ( 12) 124 NA NA
Capital expenditure (3) ( 2) ( 3) NA NA
Free cash flow 131 ( 14) 1 22 NA NA Upside/downside scenarios
Valuat ion and leverage metrics Average
P/E (x) 13.2 25.5 21.7 NA 20.1
EV/EBITDA (x) 5.8 11.0 8.0 NA 8.2
FCF yield (%) 6.5 -0.7 5.8 NA 3.9
Price/sales (x) 5.1 7.0 6.3 NA 6.2
Price/BV (x) - 17.8 4.4 3.6 NA - 3.2
Dividend yield (%) 0.0% 0.9% 0.9% NA 0.6
Total debt/capital (%) -10.8 29.9 25.9 NA 15.0
Source: FactSet
Selected operating metrics ($, units in mn) Revenue and Op Margin ($ in Mn)
Deferred revenues 467 339 339 NA
Global handset units 1363 1484 1593 NA
3G units 457 609 729 NA
4G units 1 11 43 NA
Source: Company data, Barclays Capital Note: FY end Dec.
We rate IDCC 1-OW. We believe that the company's
asymmetric licensing model supported by i ts
rigorous internal R&D processes is wel l positioned to
capi talize on the mass adoption of 3G devices, the
transition to 4G and the broader adoption of wireles s
technologies by non-traditional devices.
Our 2012 adjusted estimates do not account for any
additional contract wins beyond the LG renewal ($11
to base case) despite InterDigital's improving
pipeline of business. Share gains of 10% of the
combined 3G / 4G market not addressed could drive
an additional $12/share
Our downside case is derived from the current fixed
contracts the company has in place as well as a
market value (~14x) for its per-unit licensing
business. An inability to renew key contracts,
however, could drive additional downside driven by
further multiple contraction.
395
295 331
0
100
200
300
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500
2010A 2011E 2012E
0%
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Revenue Op. margin 80%
Downside
Case
$39
(-45.8%)
Price
Target
$
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